Behavioral insights into intertemporal choices, self-control issues and the virtues of commitment

Sep 18, 2019

“Oh no, I did it again. My chocolate supply vanished into thin air. Okay, okay, not into the air, but into my belly. I just don’t get it. When it comes to sweets, I just cannot control myself.

I’m not a fool, I do know that devouring an entire bar of chocolate a day isn’t good for me in the long run. Strangely enough though, this happens every time I buy some. Why on earth can I not stick to my plans and just eat two pieces a day?!

Seems like “future me’ is a different version of “present me’ and dislikes performing my initial plans. What’s wrong with me?’

Well, from a behavioral economist’s point of view, the diagnose is that you suffer from time-inconsistency and a projection bias. But you’re not alone. Time-inconsistency is very common among humans, and there are remedies to cure it.

In the next sections, we will explain the underlying behavioral patterns, and we will show you some measures to deal with the chocolate self-delusion.

1. The intertemporal choice problem

Every day we face decisions which will affect our future. These decisions are called intertemporal choices. Further examples besides diet are:

choosing to spend money now or save it for later
deciding whether to work hard now to enjoy your leisure time later or to enjoy another cup of coffee first
considering forgoing pay now to attain a college degree which will enable you to reap higher salaries later

In intertemporal choices, some options have immediate benefits and deferred costs: if I go out to dinner with friends tonight although there is still work to do, I will have fun now but will suffer from extra stress tomorrow. Other options have immediate costs and deferred benefits: saving for retirement cuts into my budget now but will improve life quality later.

Let us consider the chocolate example again under these aspects. We have two options:

Eating two pieces a day
Eating the whole bar of chocolate at once

Option 1 has immediate costs and deferred benefits. Eating only two pieces of chocolate satisfies us a bit now but benefits us in the future as we are less susceptible to obesity related diseases (we have a bite each day and do not consume too many calories).

Option 2 has immediate benefits and deferred costs. Eating the whole bar of chocolate at once yields large satisfaction now but will probably lead to regret in the future. Suddenly all chocolate is gone, so of course we refill our stocks. Then it starts all over again, and due to repeated overeating, we will possibly gain weight and will be in poor health.

Time-inconsistent decision making

It seems obvious that option 1 (eating two pieces a day) is healthier than 2 (eating all chocolate at once), and occasionally there are amazingly self-controlled persons who consistently choose 1. These people behave fully rational and their preferences do not change over time (in economic terms: they have well-behaved preferences).

Most of us, however, seem to suddenly prefer 2 to 1 once the chocolate is there for no other reason than passing of time. There is a discrepancy between what you prefer your future self to do and what your future self prefers to do. This is called time-inconsistent decision making.

But again, this is not an uncommon behavior. We all tend to do what feels good now in contrast to what would be good for us in the future. Strangely, costs we face right now seem always higher than future costs. The reason is that we discount future benefits differently with the length of time we spend waiting. We put more weight on actions which benefit our current selves, and less weight onto those which benefit us in the future.

So, in option 1, present costs (not eating more chocolate) seem way more severe than future costs (higher susceptibility for obesity-related health problems). The smaller-sooner option (eating chocolate) is more attractive as the larger-later option in 2.

Put differently, we tend to underestimate the benefits of choices which consequences manifest in the future. The more distant these consequences are from the present, the less we take them into account.

At bottom, time-inconsistent decision makers pursue immediate gratification. They wish prospectively to make far-sighted actions in the future, but when the future arrives, they will behave against their earlier wishes, pursuing a smaller-sooner option rather than a larger-later one. It is obvious that people behaving in this manner face a self-control problem.

2. Types of inconsistent decision-makers

Behavioral economists group people with respect to the extent of how much self-control problems they exhibit and their awareness of these problems.

Fully rational individuals can recognize ex ante when it is optimal to do a certain action because they do have stable preferences and thus no self-control problems at all. They would make a choice to split up the chocolate bar so that they can satisfy their sweet tooth and be healthy in the long run at the same time.
Naive agents are completely unaware of their changing preferences and self-control problems. They make their choices based on the inaccurate assumption that their future preferences will be identical to their current preferences. Naifs buy chocolate thinking that they prefer to eat two pieces a day and be healthy in the long run. However, after having had the first two pieces, naifs completely discount the benefits of being healthy because they cannot imagine their future self.
Sophisticated agents are located in between these two extremes. Unlike the fully rationals, these individuals do have self-control problems, but unlike the naifs, they are aware of them. They make their choices based on accurate predictions of their future behavior and anticipate their shifts in preferences towards overvaluing the present. Foreseeing this inconsistency, they are more likely to voluntarily take actions to limit their future selves.

Projection bias

Chances are good that you are a somewhat sophisticated person. Most of us have enough self-awareness to know that there are temptations which will test our self-control. We also know that we sometimes change our choices as time goes on.

However, most of us are usually not that good in estimating how much our choices will change. This tendency of people to underestimate the extent to which their future tastes will deviate from their current ones is called projection bias.

When we stand in front of all different kinds of chocolate in the supermarket, we have this gut feeling that our good intentions for responsible chocolate consumption will vanish at some point in time.

A typical inner monologue would be:

“Today and tomorrow I only want to eat two pieces, but maybe I will lose track after that and eat a piece more… But I definitely won’t eat the entire bar at once! Surely I can make it last three days…”

But guess what? It’s not going to last three days. Shopping chocolate and thinking about the optimal daily amount of chocolate consumption is done in a cold state. In the supermarket, we are controlled and not excited. A few hours later however, our state is different. We are hungry and yearning for something that pushes us through the afternoon sleepiness, which is a typical hot state. Our preferences will be altered when context changes, and the larger the gap between the two statuses, the larger the change in preferences will be.

In contrast to naifs, sophisticates may predict this hot-cold empathy gap but still underestimate the magnitude. We know that we will not fully stick to our plan, but we do not foresee how fast we will fail to comply with it. In our case, we might start with eating two pieces of chocolate, but will probably eat another three shortly after, and then, much quicker than anticipated, all bets are off and the chocolate is gone, running counter to our long-term preference to eat healthier.

3. Trouble shooting self-control: How can we get out of the chocolate trap?

Here are two hands-on proposals for those having time-inconsistent behavior when it comes to eating chocolate. The first is to clean out the kitchen and all the other secret corners where you keep your sweets and throw away all the chocolate you might want to eat in a moment of weakness. The second is to write a check for a charity, seal it up in a stamped envelope, give it to your friend or partner and tell them to drop it in the mail if you eat too much chocolate.

What both strategies have in common is that they are based on commitment. A commitment is an arrangement entered in which you voluntarily limit the choices you will have in a hot state by making them more expensive.

At first sight, the idea of committing to an action is counterintuitive. It seems strange that we can make ourselves better off by locking us in so that we have fewer options to choose from. But when we commit to an action before our preference change, we bind ourselves to choices which correspond to our long-term goals.

If you do not refill your chocolate stockings and find yourself in a hot state later craving chocolate, you must go buy it, which dramatically increases the immediate costs of eating chocolate. If you utilize the second strategy and prepare a check, the moment you eat too much chocolate, your money is gone.

By committing to something, you tackle the initial problem of intertemporal choice: costs which would otherwise manifest in the far future are pulled forward into the present, so costs and tempting benefits of vice actions now arise at the same point in time. This helps us control our behavior and follow through with our initial plans.[1]

Sometimes, you do not even need a financial commitment, but you can use peer pressure to increase “emotional” costs. Tell your spouse, friend or doctor that you have decided to only eat two pieces of chocolate per day. Ask them for a daily check-up which requires you to report your success or failure to them. If you do not want to disappointment them, having to report your failure to them would make you very uncomfortable, and this adds to the short-term costs in the hot state.

Also, there are even tech solutions to support you. For example, at the site stickk.com, you can design a commitment contract by yourself, including a verification and sanctioning mechanism. You could build a group financial commitment with your friends and send daily pictures of the remaining chocolate to each other to verify the chocolate is still there. Money from all group participants would be pooled and at the end shared between all members who reached their goal. Or you could punish yourself in case of failure: if you cannot send a picture of the remaining chocolate because you accidentally ate it, your money is given to something you really hate (such as a rivaling sports club).

You see, just because we tend to have trouble with self-control, there is no need to worry. This is a very common problem, and using commitment can help you overcome it and achieve your long-term goals.

[1] Along the same line, it can help if you make beneficial choices less expensive, such as having a bowl of carrot sticks at your desk to make eating vegetables instead of chocolate more convenient, or choosing a gym that is close to your home. It is just another way of changing the short-term cost/benefit ratio of the choices you have.

About the authors

Julia Hafenrichter is currently completing her master’s thesis on the implementation of Behavioral Economics in Public Policy at University of Passau.
Prof. Dr. Julia Stauf is Managing Director and Partner at Behavia and Professor of Economics at the Westphalian University of Applied Sciences. She holds a PhD in Behavioral and Experimental Economics from Cologne University.

Interested in more insights?

More news » More cases » Contact us »

Intertemporal choice